Daily Archives: August 5, 2010

Trading – Part Two: The Nuts and Bolts (Market Sniper)

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Here is the link to the first in this series of proposed posts on trading for review.

http://slopeofhope.com/2009/12/setting-up-your-trading-business-an-overviw-and-part-1-developing-a-successful-traders-mind-set.html

This post deals with your business plan, your mission statement and your statement of personal belief. The nuts and bolts of building your trading business.

Many lump trading plan and business plan together. It is my opinion that they are different. Parts of your business plan will be incorporated into you trading plans. Your business plan is the overall framework of how you plan to run your business. Your trading plan would be a specific trade or trade setup and how that trade is entered, managed and exited. Trading plans will be dealt with in another post.

Business Plan

Here are some things that can and should be addressed in your business plan:

1. When will you trade? Of perhaps more importance, when will you not trade? Some suggestions: do not  trade when your tired, going through emotional stress, under the influence of alcohol or drugs for example. I also have rules such as after three losing days in a row, take the next day off. After a huge day (I have a metric for that), take the next day off, etc.

2. What will you trade? There is a lot to be said for becoming expert in ONE trading instrument. For example, I know a trader who ONLY day trades INTC (Intel). He has for years and makes a very good living doing that with a $100,000 account. Something to think about for you stock de jour day traders. Every single stock has at least one guy that just trades that stock. You want to go up against that?

3. What kind of equipment will you use? How will you maintain contact with your broker in an emergency? Power failure, etc.

4. How much trading capital will you risk in a single position? How much in a pure directional play? How much within the same sector/market. etc? At what point in draw down will you suspend trading?

5. What methodology, if any, will you seek to use to trade?

6. Are you going to trade as an individual or as an entity (LLC, corporation, etc)?

7. Schedule your time for trading activities away from actual trading (study, chart analysis, etc). In other words, get some kind of schedule or rhythm.

8. what kind of time frame are you going to trade in? Day trader means NO overnight positions in day trades! Big error in day trading is to carry over positions to the next day. IF your trading by plan, you will never allow that to happen. It is essential that you match your time frame to your lifestyle. Do NOT change your lifestyle to accommodate a trading time frame! That seems logical but some decide to become day traders and up and just quit their day job. NOT a great idea unless you have already become a consistent trader. By that I mean, consistently extracting capital from markets regardless of time frame traded!

This is by no means an exhaustive list but just some ideas to get you started.

Mission Statement

Before attempting to understand markets, you must understand yourself! This is your personal goals and mission. You must have a guiding purpose to your life! Most people do nothave any kind of purpose to their lives and wander through life aimlessly, blown around every time the wind changes. IF this describes you, your chances of being successful at trading will be severely limited by your lack of a defining mission in your life.

Mission statements are not fun for most people and most traders will not evaluate their lives in conjunction with their trading! Here is the typical response…well, my mission is to make a lot of money. That does not get it at all as that is not a mission! It is also not a strong motivator! If it were, why are wealthy people such a minority? Your mission as a trader is totally and completely impacted by your mission in life. Determining your life mission is one of the most powerful and important things that you can ever do.

How else can you define what is important to you, interact with other people and obtain self satisfaction as you go through life? How much you can live your life fully and with joy is determined by your mission in life! Here is what you must define: 1) What are your guiding principles and what do you value? Answer those two questions and you will have more knowledge about yourself than perhaps you ever have before. This is some of  the hard work required to become a successful trader. The work few will undertake and maybe now you begin to see why most fail at trading?.

Statement Of Personal Belief

Certain key beliefs which have absolutely nothing to do with markets will determine your success in the markets. These are beliefs about yourself. What do you believe your capable of doing? Is trading and/or success important to you? How worthy of success do you believe yourself to be? A weak personal belief system can undermine and even kill your ability to trade even a great trading system or methodology. You must believe in what you are doing and be doing something that you believe in. Nothing short of that will suffice. This is where the rubber meets the road. Where your mission in life meets trading.

Statement of personal beliefs, by their very nature, are very personal. I will share with you mine. It was written many years ago and is as true today, for me, as the day it was written.

"I believe I possess all of the abilities innately (inside of me) to become a top trader. I believe I have the ability to learn from myself and from others the knowledge and skills to the excellent trader that I am. What I do as a trader is honorable as I supply liquidity to markets. Without people, such as myself, markets would not exist. My ability as a trader helps me, my family as well as my country and humanity as a whole."

I hope this has been of some help in your journey as a trader. Remember: remarkable traders do remarkable things. Separate yourself from the crowd. You deserve what you earn through hard work.

19 Stocks That Are Breaking Down (By Ryan Mallory)

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What we have below is a handful of stocks that are showing signs of,
or already in the process of, breaking down as the smart money
appears to be leaving them in a subtle manner. As I thumbed through
the different charts I noticed stocks trading at its peak and finally
showing some vulnerability, and on the other extreme I saw a few stocks
that had been in a channel near or at its lows, before finally
breaking down below those previous lows.

I don't know what it is lately, but many of the screens that I run
tend to have a lot of representation from the insurance industry. All of
them are primarily shorting-screens, with the exception of the screen
showing stocks trading at huge discounts (but in a way that just further
shows how hated this industry is to begin with, by how cheap they are
relative to their book value). Other industries popping up in clumps is
business services and health related stocks.

Here are 19 Stocks That Are Breaking Down.

Checkout Ryan's Blog on SharePlanner.com

Straight-Up Shorts and Stops

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This is about as non-graphical a post as possible, but here are some short sales I just executed along with their respective stop prices. Maybe you can find a gem or two in here.

AAPL……….265.95
ABD……….6.52
ACI……….28.39
AMZN……….129.16
ANF……….41.72
ATPG……….14.74
BBBY……….39.82
BP……….42.48
CAR……….12.90
CBG……….17.61
CBL……….14.78
CCL……….36.09
CHKP……….34.60
CI……….35.42
CNH……….33.46
CQB……….14.98
CVH……….22.13
CVX……….80.35
DRE……….12.75
EFX……….31.93
EMN……….64.12
EMR……….51.81
EQR……….48.11
EXPE……….24.48
F……….13.74
FDX……….87.55
FLS……….108.15
FOE……….12.72
FUL……….22.86
GFF……….15.14
GRA……….28.74
GRT……….7.22
HGSI……….28.25
HOG……….29.68
HP……….43.73
HTZ……….12.21
IOC……….71.62
JNJ……….60.76
L……….39.40
MA……….217.06
MTL……….24.91
NOV……….42.04
OMC……….39.49
PDE……….27.13
TGB……….4.37
TXT……….21.58

More Elliott Wave Thoughts (by Nathaniel Goodwin)

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Living alone the past week and a half has taught me that I am not much of a bachelor. I’ve
been told that I’m not the best person to be alone with, which is probably why I like having a roommate – mom, grandma or the colonel… whoever, I don’t like being alone by myself.


To curb my loneliness, I asked local street dweller Stun Gun Jones to move in for a bit. He agreed to stay until the Colonel gets back on the condition that I don’t cramp his lifestyle by making him use the bathroom and shower.

Last night I was showing him some charts with long term Elliott Wave counts, and he started that drunken laugh/cackling people hear from him all day on the street. He stated that the following EW count was just as possible as the count with EWI's P3 panning out, and warned me not to place big bets on very speculative EWT outlooks or be too firm with my beliefs on how things will play out long term.


SPXM
 
After hacking up some phlegm and Irish Rose, Stun Gun said that there are a few safer ways to use EWT, one way is to only try to catch 3rd waves. A third wave is the most powerful or “glorious” of all waves, and a third wave can be a 3 or C – both are third waves. Wait for an impulsive first wave to appear, it could be a 1 or an (A), wait for 2 or (B) to appear.  Enter the trade anywhere from 38-61% retracement of the first wave, set stops right below the first wave. Exit can be tricky, look for divergences or whatever to exit the 3rd wave (which is either a 3 or a C, who cares!)


PPO
 
I have to go empty Stun Gun’s pee-jar, another prerequisite of him moving in. One other thing he told me though was that lots of folks are looking for Aug 5th-6th as an important cycle or turn date, we are also very close to the 50% retracement area from the April 26th high to July 1st low. Seems like a good place for a bearish turnaround. His advice helped me out in early July, so I’ll be taking a close look the next couple of days.

Nothing goes up in a straight line (by Springheel Jack)

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Just a quick two chart post to cheer Tim up while he's in mourning for the bear case this year.

As I've said before, I'm expecting to see a new high at least on SPX in the coming months, but I'm not feeling bullish over the next few days, though many or most seem to have written August off on the bear side. There are a number of reasons why I think we could make a significant interim top here. EURUSD looks close to an interim top, and may have made it already, GBPUSD as well. USD looks overdue for a bounce and may already have turned. Oil hit my upside target this morning and SPX is right underneath a key resistance level that may well hold for a while longer, even if it is just to make the alternate IHS that I was posting about two days ago. 

One of my indicators has also just given a topping signal and that is the $GOLD:$SILVER ratio on the daily chart. Here it is with the SPX in green as the background:

100805 Gold_Silver Daily Channels

The $GOLD:$SILVER ratio has a strong support trendline that is almost a year old now. I've put in a red (sell) vertical line wherever that support trendline has been hit and you can see that it has identified most of the major interim tops in that time, often a few days early, but when it is early, the market doesn't move up much afterwards, and falls significantly after the top is made. There have been no false positives.

On the identifying bottoms side (blue vertical trendlines) it has been pretty good at that too. Even when it broke up from the rising channel for a little while, it called a significant interim low just before it broke up, and another when the resistance level above was hit.

Now that support trendline will break sooner or later, as all trendlines do, but this is a strong signal that we are likely to turn down in the very near future, and while resistance at 1130 may be broken, it isn't likely to be broken by much before the next interim top is in. My only caveat for that would be that the action over the last few months has the worrying look of an H&S pattern, and that if that support trendline broke, then we might see a major break up on SPX.

My second chart is an annotated version of the Dow H&S chart Tim posted tonight, and my comment here would be that if we were now making the top of the RS, then that would be a perfectly valid H&S pattern indicating to 7900, just with a downsloping neckline:

100805_Dow_Daily_Sloping_HS_Pattern

As I said, I'm strongly favoring the intermediate term bull side now, but my point is that while the bear case is badly wounded, and would be further wounded by a break of the June highs, it isn't dead quite yet.